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Meeting of the Federal Open Market Committee
December 13, 2005 Presentation Materials -- Text Version

Presentation Materials (920 KB PDF)

Pages 91 to 100 of the Transcript

Appendix 1: Materials used by Mr. Kos

Page 1

Top panel

Title: Trade Weighted US Dollar
Series: US Dollar
Horizon: January 3, 2005 - December 8, 2005
Description: The US dollar index increased.

Source: Federal Reserve

Middle-left panel

Title: Yen/Dollar
Series: Yen/Dollar
Horizon: January 3, 2005 - December 12, 2005
Description: The Dollar appreciated against the Yen.

Middle-right panel

Title: Dollar/Euro
Series: Dollar/Euro
Horizon: January 3, 2005 - December 12, 2005
Description: The dollar depreciated against the Euro.

Bottom panel

Title: U.S. Trade Weighted Dollar and Current Account Deficit
Series: US Dollar and Current Account as a percent of GDP
Horizon: 1980 - 2005
Description: The US dollar index decreased and the current account deficit increased.


Page 2

Top panel

Title: GDP Weighted Sovereign Yield Curves
Series: US Treasury Curve, G-7, and G-7 Ex-U.S. for January 3, 2004
Horizon: 3-month, 2-year, 5-year and 10-year
Description: Sovereign yield curves increase.

Middle panel

Title: GDP Weighted Sovereign Yield Curves
Series: US Treasury Curve, G-7, and G-7 Ex-U.S. for January 3, 2005
Horizon: 3-month, 2-year, 5-year and 10-year
Description: Sovereign yield curves increase.

Bottom panel

Title: GDP Weighted Sovereign Yield Curves
Series: US Treasury Curve, G-7, and G-7 Ex-U.S. for December 12, 2005
Horizon: 3-month, 2-year, 5-year and 10-year
Description: Sovereign yield curves increase.


Page 3

Top panel

Title: Current U.S. and Euro-area 3-Month Deposit Rates and Rates Implied by Traded Forward Rate Agreements
Series: LIBOR fixed, 3-month forward, 6-month forward, and 9-month forward for the US and the Euro-Area
Horizon: January 3, 2005 - December 12, 2005
Description: The LIBOR fixed, 3-month forward, 6-month forward and 9-month forward for both the US and the Euro-Area increased.

Middle panel

Title: Current Japanese 3-Month Deposit Rates and Rates Implied by Traded Forward Rate Agreements
Series: LIBOR fixed, 3-month forward, 6-month forward, and 9-month forward
Horizon: January 3, 2005 - December 12, 2005
Description: The Japanese LIBOR fixed, 3-month forward, 6-month forward, and 9-month forward increased.

Bottom panel

Title: Global Equity Performance
Series: Returns on Local Currency and Returns in US dollar terms for S&P 500, Nikkei, DJ Stoxx, Brazil Bolvespa, and Mexico Bolsa
Horizon: January 3, 2005 - December 12, 2005
Description: Global equity performance increased across each of the countries.


Page 4

Top panel

Title: Emerging Market and High Yield Debt Spreads
Series: High yield and EMBI+
Horizon: January 3, 2005 - December 9, 2005
Description: The High yield debt spread widened, while the EMBI+ Index decreased.

Source: JP Morgan and Merrill Lynch

Middle-left panel

Title: Investment Grade Debt Spread
Series: Investment grade debt spread
Horizon: January 3, 2005 - December 9, 2005
Description: The investment grade debt spread widened.

Source: Lehman Brothers

Middle-right panel

Title: Credit Default Swaps: GM and High Yield Index
Series: General Motors, CDX High Yield Index
Horizon: January 3, 2005 - December 9, 2005
Description: General Motors credit default swap increased sharply, while the credit default swap of the high yield index increased moderately.

Source: Morgan Stanley

Bottom-left panel

Title: Implied Volatility on the S&P 100
Series: Implied volatility on the S&P 100
Horizon: January 3, 2005 - December 9, 2005
Description: The implied volatility on the S&P 100 is below the average since January 1990.

Average Since January 1990: 19.23 percent

Bottom-right panel

Title: Treasury Yield Implied Volatility
Series: Treasury yield implied volatility
Horizon: January 3, 2005 - December 9, 2005
Description: The Treasury yield implied volatility is below the average since April 1988.

Average Since April 1988: 102.57 basis points

Source: Move Index, Merrill Lynch



Page 5

Top panel

Title: Net SOMA Expansions
Series: Net SOMA expansions
Horizon: 1995 - 2005
Description: Net SOMA Expansions totaled about $25 billion in 2005 through November.

Middle panel

Title: Currency in Circulation
Series: Currency in circulation (December to December change)
Horizon: 1995 - 2005
Description: Currency in circulation increased about $22 billion in 2005 through November.

Bottom-left panel

Title: Year-Over-Year Currency Growth Rates
Series: Currency growth rates
Horizon: January 3, 2005 - December 9, 2005
Description: The daily currency growth rate declined.

Bottom-right panel

Title: Rise and Fall of Currency Levels Around Year-Ends
Series: 01 - 02, 02 - 03, 03 - 04, 04 - 05, 05 - 06 (through Dec. 8), and projected 05 - 06
Horizon: November 1 - January 31
Description: Cumulative percent changes from early November show that the greatest change is in late December and then the change shrinks by the end of January.



Appendix 2: Materials used by Mr. Madigan

Material for FOMC Briefing on Monetary Policy Alternatives
Brian Madigan
December 13, 2005

Class I FOMC - Restricted Controlled (FR)

Exhibit 1

Exhibit 1 reports on recent financial market developments.

Top-left panel
Expected Federal Funds Rates*

A line chart plots the expected path of the federal funds rate derived from federal funds futures on two dates--the date before the last FOMC meeting and the most recent date. The chart indicates that the expected funds rate path has revised up somewhat over the intermeeting period.

* Estimates from federal funds and eurodollar futures, with an allowance for term premia and other adjustments.  Return to text

Top-right panel
Probability of a 25 Basis Point Tightening at Upcoming FOMC Meetings*

A bar chart compares the probability of a 25 basis point tightening of policy at upcoming meetings computed on the most recent date and as of the date of the prior meeting. The chart indicates slightly higher probabilities of policy tightening at the current and upcoming meetings.

* Estimated from federal funds futures.  Return to text

Middle-left panel
Primary Dealer Survey

Middle-right panel
A Case for Firming Policy Today

Bottom panel
Range of Estimated Equilibrium Real Rates

A chart plots the current real federal funds rate along with a range of model-based estimates of the equilibrium real rate. The chart indicates that the current real funds rate is at the lower bound of the range of model estimates of the equilibrium real rate.

An explanatory note is provided in Chart 5 of the Bluebook.



Exhibit 2
Table 1: Alternative Language for the December FOMC Announcement

[Note: In Appendix 2, Exhibit 2, Table 1, emphasis (strike-through) has been added to indicate strike-through text in the original document, and strong emphasis (bold) has been added to indicate red text in the original document.]
November FOMC Alternative B Alternative C
Policy Decision 1. The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4 percent. The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4¼ percent. The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4¼ percent.
Rationale 2. Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment. However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas. Despite E elevated energy prices and hurricane-related disruptions, in the expansion in economic activity appears solid. have temporarily depressed output and employment. However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas. Despite Eelevated energy prices and hurricane-related disruptions, in economic activity the expansion have temporarily depressed output and employment. remains vigorous, supported by However, monetary policy accommodation, coupled with and robust underlying growth in productivity. , is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas.
3. The cumulative rise in energy and other costs has the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained. The cumulative rise in energy and other costs has the potential to add to inflation pressures; however, c Core inflation has been stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures. Core inflation has been relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, relatively high levels of resource utilization as well as elevated T the cumulative rise in energy prices have and other costs has the potential to add to inflation pressures. ; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.
Assessment of Risk 4. The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. The Committee judges that some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. [Unchanged]
5. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives. [Unchanged]

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